With a market cap of $502.47 million, DoubleDown Interactive Co., Ltd. (DDI) is an under-the-radar small-cap stock that could appeal to deep-value investors. The company operates in the online social casino gaming space, where players gamble with virtual money, and has recently expanded into real-money iGaming through its acquisition of SuprNation in 2023.
In its latest earnings report, DDI recorded a double-digit revenue growth fueled by higher player engagement, strong in-game monetization, and the successful integration of its iGaming acquisition, SuprNation. The company’s move into iGaming is already paying off, with SuprNation’s performance improving by 22%, further bolstering its growth trajectory. However, challenges remain, including a declining user base and regulatory hurdles in the iGaming sector, which could impact its long-term trajectory.
As the company navigates the competitive and regulatory landscape of digital gaming, investors may wonder whether DDI is a strong bet for long-term growth or whether the risks outweigh the potential rewards. Shares of DDI have gained 20% over the past year to close the last trading session at $10.14.
Here’s what could influence DDI’s performance in the upcoming months:
Solid Financial Performance
For the third quarter that ended September 30, 2024, DDI reported revenue of $82.98 million, up 13.7% year-over-year. Its operating income grew 18.7% from the prior year’s quarter to $35.24 million.
Further, the company’s adjusted EBITDA rose 21.5% from the year-ago value to $36.10 million, while its cash outflow from operating activities came in at $101.13 million compared to an inflow of $8.89 million. DDI’s comprehensive attributable net income amounted to $29.31 million, reflecting an increase of 16.9% from the same period last year. Also, its EPS for the quarter stood at $10.11.
Additionally, its cash and cash equivalents increased to $292.65 million as of September 30, 2024, compared to $206.91 million as of December 31, 2023.
Impressive Historical Growth
Over the past three years, DDI’s net income has grown at a CAGR of 14.4%. Meanwhile, its EBITDA has increased at a CAGR of 4.3% over the same timeframe. In addition, the company’s EPS has grown at a CAGR of 10.6% over the same period, and its tangible book value has improved at a 32.9% CAGR.
Favorable Analyst Estimates
The consensus revenue estimate of $85.67 million for the fiscal fourth quarter (ended December 2024) represents a 3.1% increase year-over-year. The consensus EPS estimate of $0.59 for the to-be-reported quarter indicates a 15.7% improvement year-over-year. The company has a promising surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.
For the fiscal year 2025, the company’s revenue is anticipated to grow marginally from the prior year period to $350.90 million, while its EPS is expected to come in at $2.31.
Lower-Than-Industry Valuation
In terms of forward non-GAAP P/E, DDI is trading at 4.20x, 71.2% lower than the industry average of 14.58x. Similarly, the stock’s forward EV/EBIT and EV/EBITDA multiples of 1.21 and 1.18 are 92.1% and 85.4% lower than the industry averages of 15.28x and 8.06x, respectively.
Additionally, the stock’s 0.48x forward EV/Sales is 75.9% lower than the industry average of 1.99x.
High Profitability
DDI’s 41.21% trailing-12-month EBITDA margin is 120.6% higher than the 18.68% industry average. Similarly, the stock’s 24.50% trailing-12-month levered FCF margin is 176.9% higher than the 8.85% industry average.
In addition, its trailing-12-month net income margin of 33.28% is considerably above the 3.79% industry average. Furthermore, the stock’s ROCE and ROTA of 15.06% and 12.95% compare to the industry averages of 4.47% and 1.79%, respectively.
POWR Ratings Exhibit Solid Prospects
DDI’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DDI boasts an A grade for Value and Quality, mirroring its discounted valuation and higher profitability metrics compared to industry standards. Additionally, it earned a B grade for Growth, consistent with its solid financial performance in the last reported quarter.
Within the A-rated Entertainment - Toys & Video Games industry, DDI is ranked first out of the 18 stocks.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all DDI ratings here.
Bottom Line
Although the stock has seen a slight dip of nearly 3% year-to-date, it remains an attractive option for deep-value investors. With a robust cash generation model and a net cash position that accounts for 65% of its market cap, the company’s low valuation presents substantial upside potential. DDI’s core social casino business continues to expand while its iGaming segment gains traction, positioning the company for success in the competitive digital gaming market.
With a solid balance sheet and increasing profitability, DDI is well-equipped to make strategic investments and drive future growth. For those seeking to capitalize on a well-positioned, low-priced stock in a rapidly evolving sector, it could be wise to invest in DDI.
How Does DoubleDown Interactive Co., Ltd. (DDI) Stack Up Against Its Peers?
While DDI has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Entertainment - Toys & Video Games industry: Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK), and PLAYSTUDIOS, Inc. (MYPS), all of which carry A (Strong Buy) ratings.
To explore more Entertainment - Toys & Video Games stocks, click here.
What To Do Next?
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DDI shares . Year-to-date, DDI has declined -2.87%, versus a 2.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
Should You Bet on DoubleDown Interactive’s Growth Potential? StockNews.com
